The Irish central bank said the recession in the 17-nation euro area eased in the first quarter and a recovery is likely to be led by Germany, the region’s largest economy.
While gross domestic product in the euro area probably declined further in the first quarter, the contraction will be “milder” than at the end of last year, when the economy shrank 0.6 percent, the Dublin-based central bank said in its quarterly bulletin published today. “Output may begin to stabilize in the second half of the year, as improvements in the net trade position outweigh weak domestic demand.”
The euro economy “is likely to be supported by positive developments in Germany, where growth is expected to resume in late 2013,” it said.
The Bundesbank predicts that the German economy returned to growth in the first quarter, even as data fall short of expectations. European Central Bank President Mario Draghi said yesterday that risks to the economic outlook in the region are on the downside and policy makers “stand ready to act” to bolster growth.
The ECB last month cut its economic forecasts. It now predicts a contraction of 0.5 percent this year and growth of 1 percent in 2014.
“Renewed uncertainty within the euro area, in particular relating to any re-escalation of the sovereign debt crisis, may further undermine the potential for domestic demand to regain some ground toward the end of 2013,” the Irish central bank said. “A return to the soft global trade conditions of 2012 would jeopardize the role of net trade in providing support to the stabilizing of GDP.”
Inflation will “remain contained” this year and next, it added.
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